Economy in jeopardy
Foong Wai FongPublished: May 19, 2008 3:25 AM | Updated: May 20, 2008 4:45 AM
The way the Barisan Nasional government announces its response to various crises almost inevitably involves the spending of billions of ringgit.
Two images are conjured up by this approach: first, Malaysia’s pockets are so deep that we will never run out of money; and second, we can buy our way out of our economic woes.
Malaysia cannot afford this for too much longer.
analysis The way the Barisan Nasional government announces its response to various crises almost inevitably involves the spending of billions of ringgit.
Two images are conjured up by this approach: first, Malaysia’s pockets are so deep that we will never run out of money; and second, we can buy our way out of our economic woes.
Malaysia cannot afford this for too much longer.
A report in The Edge on May 12 revealed that the fuel subsidy of RM43 billion is three times the revenue derived from personal income tax of RM13.4 billion and over 20 percent more than the forecast corporate tax of RM34.8 billion. In total, the fuel subsidy is almost 50 percent of the estimated federal government revenue of RM102 billion.
Money should only be used to do two things: to provide temporary relief in a crisis and invested to build capacity. Economists remind us that there is an opportunity cost to money, and that it must yield recurring returns.
The populist approach in Malaysia is to give out candy. It is easier for bureaucrats to do this than to think out real solutions. Unlike in business, bureaucrats spend money without demanding a return, businesses ask for a return before they disburse funds.
This view is best summed up by a foreign diplomat: “Malaysia manages its economy in the political way - talking and making slogans about things, dishing out money so all are relieved, but not asking tough questions and working hard to find solutions.”
All would be well and good if the Treasury never runs out of money. But the government has been running a budget deficit averaging 3 percent of GDP for some years now. How much longer can we go on like this?
Even oil-producing nations are preparing for the day when oil runs out in 30-40 years. Petronas adviser and former premier Dr Mahathir Mohamad has warned that Malaysia will become a net importer of oil by 2014.
Malaysia has one of the highest resources per capita in the world, yet we are not working these hard enough to give us a sustainable standard of living. Within a culture of short-term actions that find the easiest way out, land is used for oil palm cultivation to earn quick cash. As a result; the food import bill stands at RM21.3 billion.
Wastage is another major issue, perpetuated by policy-induced biases. The most obvious example is found in the public transportation sector. If we have an efficient system, there would be no need to have so many toll roads and private cars, and billions of ringgit could be saved in fuel subsidy.
The problems that are reaching ‘crisis’ proportions are not new, but perhaps the nation is being forced to the brink of a widespread crises. Still, all we hear is talk, rather than implementation of solutions.
Where responsibility lies
The prime minister is preparing the people for hardship ahead. He has advised us to change our lifestyles. It seem that he is not quite aware that the people have already made tremendous adjustments over the last decade - income has not grown much, whereas inflation has been escalating at an alarming rate.
The responsibility for urgent adjustments does not lie with the public; it lies with the government, beginning with its mindset. It must be serious about managing the country; finding the right people to do the job and implementing rational and workable solutions today, no matter how tough or unpopular these are.
Members of the government need to operate with a sense of crisis. They should think through the problems and stop bickering over petty issues. A visiting foreign friend described the Malaysian theatre thus: “The tree is about to fall, but the monkeys in the canopy are still fighting!”
The government should freeze spending that is considered luxurious and unnecessary and stop leakages due to corruption and manipulation. Place a moratorium on development projects that require high investment with high uncertainty, such as biotechnology, and redirect the money to more urgent areas.
Mahathir recently advised the government not to throw further subsidies at the food problem. A Sunday Star report pointed out that the country may lose its self-sufficiency in chicken and pork if ceiling prices are not raised or even abolished to allow the market mechanism to function.
In the long run, subsidies kill an industry, as many developed nations have found out. Subsidies distort the real costs of production and services, and no government can afford to continuing absorbing costs over time.
Besides, the subsidy lifeline only perpetuates inefficiencies.
Part 2: It’s a policy crisis
FOONG WAI FONG is Director of Megatrends Asia, best-selling author of ‘Megatrends Asia’ (with John Naistbitt), ‘The New Asian Way’, ‘Mr Prime Minister We Have to Talk’, and ‘Culture Is Good Business’.
Two images are conjured up by this approach: first, Malaysia’s pockets are so deep that we will never run out of money; and second, we can buy our way out of our economic woes.
Malaysia cannot afford this for too much longer.
A report in The Edge on May 12 revealed that the fuel subsidy of RM43 billion is three times the revenue derived from personal income tax of RM13.4 billion and over 20 percent more than the forecast corporate tax of RM34.8 billion. In total, the fuel subsidy is almost 50 percent of the estimated federal government revenue of RM102 billion.Money should only be used to do two things: to provide temporary relief in a crisis and invested to build capacity. Economists remind us that there is an opportunity cost to money, and that it must yield recurring returns.
The populist approach in Malaysia is to give out candy. It is easier for bureaucrats to do this than to think out real solutions. Unlike in business, bureaucrats spend money without demanding a return, businesses ask for a return before they disburse funds.
This view is best summed up by a foreign diplomat: “Malaysia manages its economy in the political way - talking and making slogans about things, dishing out money so all are relieved, but not asking tough questions and working hard to find solutions.”
All would be well and good if the Treasury never runs out of money. But the government has been running a budget deficit averaging 3 percent of GDP for some years now. How much longer can we go on like this?
Even oil-producing nations are preparing for the day when oil runs out in 30-40 years. Petronas adviser and former premier Dr Mahathir Mohamad has warned that Malaysia will become a net importer of oil by 2014.
Malaysia has one of the highest resources per capita in the world, yet we are not working these hard enough to give us a sustainable standard of living. Within a culture of short-term actions that find the easiest way out, land is used for oil palm cultivation to earn quick cash. As a result; the food import bill stands at RM21.3 billion.
Wastage is another major issue, perpetuated by policy-induced biases. The most obvious example is found in the public transportation sector. If we have an efficient system, there would be no need to have so many toll roads and private cars, and billions of ringgit could be saved in fuel subsidy. The problems that are reaching ‘crisis’ proportions are not new, but perhaps the nation is being forced to the brink of a widespread crises. Still, all we hear is talk, rather than implementation of solutions.
Where responsibility lies
The prime minister is preparing the people for hardship ahead. He has advised us to change our lifestyles. It seem that he is not quite aware that the people have already made tremendous adjustments over the last decade - income has not grown much, whereas inflation has been escalating at an alarming rate.
The responsibility for urgent adjustments does not lie with the public; it lies with the government, beginning with its mindset. It must be serious about managing the country; finding the right people to do the job and implementing rational and workable solutions today, no matter how tough or unpopular these are.
Members of the government need to operate with a sense of crisis. They should think through the problems and stop bickering over petty issues. A visiting foreign friend described the Malaysian theatre thus: “The tree is about to fall, but the monkeys in the canopy are still fighting!”
The government should freeze spending that is considered luxurious and unnecessary and stop leakages due to corruption and manipulation. Place a moratorium on development projects that require high investment with high uncertainty, such as biotechnology, and redirect the money to more urgent areas.Mahathir recently advised the government not to throw further subsidies at the food problem. A Sunday Star report pointed out that the country may lose its self-sufficiency in chicken and pork if ceiling prices are not raised or even abolished to allow the market mechanism to function.
In the long run, subsidies kill an industry, as many developed nations have found out. Subsidies distort the real costs of production and services, and no government can afford to continuing absorbing costs over time.
Besides, the subsidy lifeline only perpetuates inefficiencies.
Part 2: It’s a policy crisis
FOONG WAI FONG is Director of Megatrends Asia, best-selling author of ‘Megatrends Asia’ (with John Naistbitt), ‘The New Asian Way’, ‘Mr Prime Minister We Have to Talk’, and ‘Culture Is Good Business’.
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